NET ZERO CARBON PATHWAY FRAMEWORK
NET ZERO CARBONPATHWAY FRAMEWORKSupporting Signatories of theBBP Climate Change CommitmentOCTOBER 2020
Opening StatementClimate change is one of the greatestthreats of our time and has far reachingimplications for the real estateindustry. With the built environmentcontributing approximately 40% ofgreenhouse gas emissions in the UK1,the thought of tackling this challengecan seem daunting.The path to net zero carbon is complex, challengingand uncertain, with much of the detail still unknown.However, this is not a reason to delay action. It iscritical that the real estate industry acknowledges theimportant role it has to play, embraces the challenge,and collaborates.This was a guiding principle in the development of the BBPClimate Change Commitment. Launched in September2019, it is one of the most comprehensive and extensivecommitments in the real estate industry. It includes someof the most challenging emission sources for propertyowners to measure and manage, namely tenant energyconsumption and embodied carbon. To that end, theCommitment is extremely ambitious in nature. Yet,members of the BBP understand and accept that if we areto tackle the full climate impact of the built environment,we must reflect the broad scope of carbon emissions thatare associated with our property investments, even if weare not yet sure how we will do it.The Commitment requires each signatory to publishtheir own Net Zero Carbon Pathway, setting out howthey will be delivering against a net zero carbon target.The Commitment also requires signatories to reportannually against their pathways, ensuring that we remaintransparent and can gauge progress over time.This Framework sets out the building blocks of a netzero carbon pathway for property owners. It has beendesigned to support Signatories, but it can also be usedby any property owner seeking to develop their ownpathway. It has been developed with extensive inputfrom BBP members, demonstrating collective drivefrom the industry.2 Net Zero Carbon Pathway FrameworkContentsIntroduction3How to use the document4What is Net Zero Carbon?5Net Zero Carbon PathwayFramework7Appendix 1 – BBP Climate Change Commitment11Appendix 2 – Detailed Carbon Scope Table &Greenhouse Gas Protocol Alignment12Acknowledgements14It is important to emphasise that the Framework is aworking document. It is not set in stone. It is expectedthat it will change over time to reflect our evolvingunderstanding of both the key attributes of a net zerocarbon pathway, and how these can be applied in thecontext of different investment and operating modelsM&G Real Estate is a proud signatory of the BBP ClimateChange Commitment, and I look forward to working withmy peers within the BBP to tackle the challenges thatlay ahead. If we are to be successful as a sector, we mustwork together. This is only the first step, but collectively,we will achieve far more than we can alone.We encourage all real estate owners to follow thisFramework in the development of their own Net ZeroCarbon Pathways and to sign up to the BBP ClimateChange Commitment.Nina Reid Director, Responsible PropertyInvestment, M&G Real Estate Chair of the BBP Net Zero Carbon PathwayWorking Group
IntroductionIt has become evident that urgentaction is needed to combat climatechange. Recent reports publishedby the Intergovernmental Panel onClimate Change (IPCC) confirm theimportance of limiting the globaltemperature increase to 1.5 degreesCelsius.2 Currently, the world is ontrack for 2.8-4.8 degrees of warming.3Businesses are becoming increasingly vocal on theneed to respond to the issue of climate change andmany organisations have sought to demonstrateaction by making commitments to become “netzero carbon”. The commercial real estate sectoris no different. In September 2019 the BetterBuildings Partnership launched its Climate ChangeCommitment4 (see Appendix 1 for the full text). One ofthe key requirements is for Signatories to each publisha Net Zero Carbon Pathway, setting out how they planto deliver “net zero carbon” real estate investments by2050 at the latest, as well as publish progress towardsthis goal annually.There is currently much ambiguity surroundingthe definition and scope of “net zero carbon”commitments. This is certainly true in the propertysector and is to be expected as the industry grappleswith some of the new and unique challenges of what“net zero carbon” means for real estate investments –particularly given the wide ranging ownershipstructures, leasing models and management controlthroughout their life cycle.3 Net Zero Carbon Pathway FrameworkThe BBP Climate Change Commitment wasdeveloped to demonstrate leadership, but also toencourage greater industry consistency and drivemarket transformation. It sets clear boundaries thatapply equally to all Signatories with the intentionthat the Commitment covers as many real estateassets under management as possible and includesemissions from all major activities associatedwith the development, operation and servicing ofcommercial real estate investments. The boundariesof the Commitment are absolutely critical and can besummarised as follows: Investment boundaries: All real estate holdingsthat a signatory has capital invested in, unlessclearly stated otherwise. For indirect real estateinvestments it is recommended that carbonemissions should be attributed on a proportionalshare basis relative to ownership. Carbon boundaries:5– Operational carbon, critically covering wholebuilding performance, including occupieractivities; and services procured by thelandlord to service and maintain the space.– Embodied carbon of development,refurbishment and fit-out works.It is important to note that the Signatories’ NetZero Carbon Pathways will vary according totheir real estate investment strategies, businessmodels and leasing structures, and any review ofSignatories’ pathways should take account of this.It is also anticipated that Signatories’ Pathwayswill evolve over time as best-practice is shared andunderstanding improves.
How to use the documentThis document is intended for useby Signatories of the Better BuildingsPartnership’s Climate Change Commitment.It is designed to support those individuals who will beresponsible for outlining their organisations’ Net ZeroCarbon Pathways. It also indicates the nature of theinformation that the BBP would expect to see in a Net ZeroCarbon Pathway. It can therefore be used by any propertyowner and it is hoped that this will provide some muchneeded clarity and consistency for the sector.The document provides:1. Guidance on the carbon and investmentboundaries covered by the Commitment, andwhere additional information may be required.2. A delivery strategy template that outlines thetopic areas that should be covered and theinformation that could be provided to articulatehow the Net Zero Carbon Target will be deliveredand reported against.PUSHING THE BOUNDARIES: DELIVERING AGAINSTA CHALLENGING COMMITMENT SCOPEClimate change is a rapidly evolving issue, andone which requires bold action. The carbonemissions associated with the ownershipand management of real estate portfolios willinclude activities that are under the propertyowner or manager’s direct and indirect control.The scope of the carbon footprint coveredby the BBP Climate Change Commitmentis intended to cover the material sources ofcarbon that need to be reduced to net zeroby 2050 by real estate owners and investors.However, for several sources of carbon coveredby the Commitment, the industry is still workingwith limited data, particularly for areas notunder the direct control of property owners e.g.emissions associated with occupier activities.It was important to Signatories that theCommitment covered these material sourcesof carbon, even if the industry is still grapplingwith how to measure and reduce it.4 Net Zero Carbon Pathway FrameworkIt should therefore be recognised that in reviewingany Net Zero Carbon Pathway published bySignatories, the level of action and underlying detailwill not be equal across all business areas at first.It should be expected that, initially, the businessareas that are easiest to tackle will include the mostcomprehensive and detailed delivery strategies.Conversely, the more challenging areas will containthe least amount of detail, with a focus on filling datagaps and developing strategies.It will take time for industry understanding andconsensus to develop regarding how best toovercome these challenges and it is fully intendedthat Signatories’ Net Zero Carbon Pathways willevolve over time as this understanding improves.However, Signatories of the BBP Climate ChangeCommitment recognise the importance ofhighlighting these now in order to be transparentabout the enormity of the challenges that lieahead, and to drive collective action in the hope ofovercoming such challenges together.
What is Net Zero Carbon?In its simplest form, “net zero carbon” is when the carbon emissions emittedas a result of all activities associated with the development, ownership andservicing of a building are zero or negative. As outlined in Figure 1 below, thescope of these activities is extensive.Figure 1. Overview of carbon emission sources across with the real estate investment life-cycleReal EstateLifecycle StageDEVELOPMENT &CONSTRUCTIONEmbodiedcarbonOPERATIONTransport of rawmaterialsPurchase of goodsand services(M&E & propertymanagement services)ManufacturingFit-out worksTransportRefurbishment worksRaw materials supplyEND OF LIFEDeconstructionTransportWaste processingDisposalConstruction (fugitive emissions)TransportRICS WholeLife CarbonAssessment StageA U PFRONTCARBON5 Net Zero Carbon Pathway FrameworkB U SE STAGECARBONC E ND OF LIFECARBON
A review of corporate net zero carbon commitmentswill show wide ranging variations in the carbon scopeincluded within any given organisation’s target. One ofthe most common variations is whether a target includesoperational carbon (i.e. carbon associated with theenergy used to operate a building), embodied carbon(i.e. the carbon associated with all the material andoperations to construct and maintain a building) or both.Even looking more granularly at operational carbon,one can see differences in whether targets only includelandlord energy usage (Scope 1 & 2 emissions) or alsoinclude occupier energy usage (Scope 3 emissions). Suchvariations can make the comparison of commitments andtargets between organisations challenging at best, and inmany cases, impossible.Those companies that have signed the BBP ClimateChange Commitment have agreed a common basisfor target setting and reporting that includes carbonemissions arising from the energy used to operate,service and maintain the property—both regulated andunregulated—and the embodied carbon for construction,refurbishment and fit-out activities.Work is being undertaken by the industry, including thatof the UK Green Building Council6 to help build consensusaround the detail of a net zero carbon definition for thebuilt environment.However, there are still many questions that need to beanswered before a clear and consistent agreement onwhat net zero means for the real estate industry can be6 Net Zero Carbon Pathway Frameworkestablished. Specifically, further work is required by theindustry to answer the following: Do buildings need to achieve an Energy UseIntensity (EUI) target? The work undertaken by theUK Green Building Council and the Carbon Risk RealEstate Monitor (CRREM) suggests that this will beneeded. Further work is required to ensure that EUIsare developed across a wide range of property typesand that these are appropriate in relation to differentgeographical contexts. What is acceptable in terms of renewable energyprocurement? Clarity is required regarding anystandards for renewable energy procurement to beconsidered net zero carbon compliant. hat is acceptable in terms of the approach andWtype of carbon offsetting? ow can organisations confidently announceHthe achievement of a net zero carbon buildingor portfolio?It is clear from discussions within the BBP membershipthat there is a strong desire for market transparency andintegrity concerning the verification and certification ofnet zero carbon buildings and portfolios. There is a strongdemand for the creation of a certification scheme that willprovide this level of assurance and in doing so, embodythe principles of the energy hierarchy. It is hoped thatsuch an offering may be developed in the near future.
Net Zero Carbon Pathway Framework1. NET ZERO CARBON TARGET DATESignatories must state their Net Zero CarbonTarget date that covers the full scope andboundaries of the Commitment. This will be 2050unless an earlier date is selected.Signatories can provide voluntary interim targets.Where the scope differs from that outlined in Table 1below, it should be clearly stated.2. INVESTMENT BOUNDARYEach Signatory should clearly articulate theinvestment boundary of their Net Zero CarbonTarget.The investment boundary of Signatories’ Net ZeroCarbon Targets may vary depending on eachindividual company’s business strucutre, (e.g.whether they are a a property company, REIT or fundmanager) and the real estate investment vehiclesthey manage and utilise.Signatories that invest across multiple geographiesshould make clear whether any specific geographiesare not included within their Net Zero Carbon Target.For fund managers who have multiple types of realestate investment vehicles (e.g. unlisted funds,listed and unlisted companies and real estate debt),they should be clear which investment vehiclesare included within their Net Zero Carbon Target.In an effort to ensure consistency of approach andtransparency, Signatories must clearly state anyreal estate investment vehicles that are not in scopeof the target, coupled with the reasoning and ameasure of financial materiality, i.e. percentage oftotal real estate investments.Where a real estate investment vehicle is included, allassets under management owned by the Signatorymust be included within the investment boundaryi.e. Signatories should not selectively cherry pickindividual properties for inclusion or exclusion.7 Net Zero Carbon Pathway FrameworkWhere real estate investments are managed by athird party, e.g., Joint Ventures (JVs) and indirectreal estate investments, these should be includedeither on a proportional basis by ownership, or byoperational control where a level of operationalcontrol exists. Approaches should be consistentwhen including multiple JVs.For example, two real estate investors whohave signed up to the BBP Climate ChangeCommitment co-own a shopping centre througha JV partnership - one owning 75% and the otherowning 25%. The owner with a 75% equity sharealso has full management control of the property.In this scenario: The owner with the minority share willinclude the shopping centre within itsinvestment boundary and report the carbonproportionally in line with its 25% equity share. The owner with the majority share will includethe shopping centre within its investmentboundary and can elect to either report 100%of the carbon in line with its managementcontrol, or 75% in line with its equity share.It is appreciated that within this example there is arisk of double counting if the two property ownersdo not elect to apply the GHG Reporting Protocolin a consistent manner. However, the BBP is notspecifying how Signatories should report againstthe GHG Reporting Protocol as both options arevalid. It is also felt any risk of double counting isnot material to the efforts of developing a Net ZeroCarbon Pathway.It is fully appreciated that including indirect realestate investments within the scope of a NetZero Carbon Target is likely to be significantlymore challenging than direct investments due tothe level of control and access to data individualSignatories have for those investments. To supportSignatories in assessing how their individualreal estate investment boundaries should bearticulated within their Net Zero Carbon Pathwayan example is provided in Figure 2.
Figure 2. Example Target Investment BoundaryIn this example, ABC Real Estate Investment Management, which utilises a number of different realestate investment vehicles across multiple geographies, has elected to exclude all assets undermanagement in North America, include all assets under management in Asia Pacific, and exclude itsreal estate debt investments in EMEA.ABC REAL ESTATE INVESTMENT MANAGEMENTDirectholdingsUnlistedfundsListed andunlistedcompaniesNORTH AMERICADirectholdingsUnlistedfundsListed fundsASIA PACIFICIn such a scenario, the following example commentary would be expectedto be included in a Signtatories’ published Net Zero Carbon Pathway.“ABC Real Estate Investment Management is responsible for 50bn AUM globally.Our Net Zero Carbon Target has been formally ratified for our real estateinvestments covering EMEA & Asia Pacific totalling 30 AUM. However, our 3bn UKdebt fund has been removed from the boundary of our net zero carbon target dueto the lack of data we hold to fully understand the implications of including thisfund within our target. We have started a two-year plan to review this and assesshow this fund can be integrated into our target in the future.In addition, as a result of the company structure, our North American real estateinvestments, totalling 17bn AUM, have not been ratified for inclusion. We areworking to understand the implications of including these investments within ournet zero carbon target investment boundary and will be reviewing our position inthe coming year.”8 Net Zero Carbon Pathway Framework
3. CARBON EMISSION BOUNDARIESEach Signatory must clearly articulate thesources of greenhouse gas emissions (referred tothroughout this document as carbon) includedwithin their Net Zero Carbon Target.In an effort to ensure consistency, the carbon sourcesincluded within each Signatory’s Net Zero CarbonTarget should be confirmed against carbon sourcesset out in Table 1. If there is divergence, particularlyregarding the addition of any interim targets,Signatories must clearly state where this is thecase, coupled with the reasoning and a measure ofmateriality.A more detailed table which demonstrates the rangeof the carbon sources recognised by the Commitmentand their alignment to the Greenhouse Gas Protocolcan be found in Appendix 2.Table 1: BBP Climate Change Commitment Carbon Boundaries activities that should be included within Signatories net zero carbon target.Activities which generate GHGemissions for real estate investments(directly or indirectly)Activities controlledand managed bylandlords*Activities controlledand managed byoccupiersCorporate /Head OfficeEnergy to operate buildings(electricity, fuels & heat networks)Water to operate buildingsWaste generated during operationRefrigerants (Fugitive emissions)Purchase of goods and services(M&E & property managementservices)**Business travel (excluding thatassociated with development works)New development worksRefurbishment worksFit-out WorksEnd of life**** It is expected that this includes all AUM covered by the BBP Climate Change Commitment, including indirect investments on a proportional share basis.Signatories must clearly state whether these emissions will be covered proportionally on the basis of ownership or operational control.** This relates to services procured by the landlord to service and maintain the space e.g. property management, service charge recoverable items andminor CapEx items e.g. minor replacements.*** End of life carbon has not been included within the scope of the BBP Climate Change Commitment due to lack of industry consensus on how it shouldbe accounted for. As industry understanding improves and an agreed approach adopted, this position will be reviewed.emissions are not included within the scope as
a Net Zero Carbon Pathway, setting out how they plan to deliver “net zero carbon” real estate investments by 2050 at the latest, as well as publish progress towards this goal annually. There is currently much ambiguity surrounding the definition and scope of “net zero carbon” commitments. This is certainly true in the property
UC Pathway Funds. UC Pathway Income Fund UC Pathway Fund 2020 UC Pathway Fund 2025. UC Pathway Fund 2030. UC Pathway Fund 2035 UC Pathway Fund 2040 UC Pathway Fund 2045. UC Pathway Fund 2050. UC Pathway Fund 2055 UC Pathway Fund 2060. UC Pathway Fund 2065. CORE FUNDS - 17.0 billion Bond and Stock Investments
TARGET DATE FUNDS - 9.1 billion UC Pathway Funds UC Pathway Income Fund UC Pathway Fund 2020 UC Pathway Fund 2025 UC Pathway Fund 2030 UC Pathway Fund 2035 UC Pathway Fund 2040 UC Pathway Fund 2045 UC Pathway Fund 2050 UC Pathway Fund 2055 UC Pathway Fund 2060 UC Pathway Fund 2065 CORE FUNDS - 12.9 billion Bond and Stock Investments Bond .
UC Pathway Income Fund UC Pathway Fund 2015 UC Pathway Fund 2020 UC Pathway Fund 2025 . UC Pathway Fund 2030 UC Pathway Fund 2035 UC Pathway Fund 2040 UC Pathway Fund 2045 . UC Pathway Fund 2050 UC Pathway Fund 2055 UC Pathway Fund 2060 . CORE FUNDS - 13.7 billion Bond and Stock Investments . Bond Investments Short-Term UC Savings Fund
The Net-Zero riteria are part of the STi’s Net-Zero Standard. The Net-Zero Standard, which entails both the Criteria and forthcoming Net-Zero Guidance, will be finalized by November 2021 in advance of the 2021 United Nations Climate Change Conference (COP26). Public consultation of the Net-Zero Guidance is scheduled to begin in July 2021.
List of Figures, Tables and Boxes Figures 2 Figure S1 Overview of the key nuances of net-zero target implementation approaches 5 Figure S2 Ten basic criteria for net-zero target transparency 14 Figure 1 Internet searches for net-zero emissions 15 Figure 2 Map of cities and regions pursuing net-zero emissions 16 Figure 3 Population of cities and regions with net-zero targets, by geographic region
emissions ('net zero emissions') has grown, so has the need for a common understanding on what net zero emissions means and how to achieve net zero goals. Investors are also putting pressure on companies to lay out their plans for reaching net zero emissions and to demonstrate how net zero pathways are integrated into their long-term strategy.4
Our net zero carbon pathway is the result of a major collaborative effort across the business, detailed technical modelling of our European portfolio and a review of what net zero really means for the industry today. While the economic effects of COVID-19 quite rightly sit at the forefront of
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